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The purpose of this study is to examine the impact of marginal transactions on the disposition effect of individual investors and foreign investors. According to the period of investigation on all of the common stock invested by individual investors and foreign investors in Taiwan stock market from January 2,2004 to December 30,2005, this study applies significance test to determine whether there is the disposition effect of individual investors and foreign investors by measuring the coefficient of disposition based on the method of Weber and Camerer(1998). When the abnormal of marginal transactions exist under foreign institutional investors with high or low percentage of shares holding, we also discuss that whether there is the disposition effect and the existence of abnormal of marginal transactions have impact on the decision and behavior or not. The empirical results are as follows:
(1)In Taiwan stock market, this study divides the data into high and low percentage of shares held by foreign institutional investors. It shows that foreign institional investors have no disposition effect, bur Individual Investors have disposition effect.
(2)As the percentage of shares held by foreign institutional investors is high, the disposition effect can not be affected by margin buying ratio(short selling ratio). On the contrary, the disposition effect is influenced significantly by low percentage of shares held by foreign institutional investors and high percentage of margin buying ratio(short selling ratio).
(3)When the percentage of shares held by foreign institutional investors is high, the low percentage of short-to-long ratio with higher disposition effect than the high percentage of short-to-long ratio. On the contrary, as the percentage of shares held by foreign institutional investors is low, the high percentage of short-to-long ratio with higher disposition effect than the low percentage of short-to-long ratio.
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